Lean organization by production cell. Acme Manufacturing adopted lean management
ID: 2476759 • Letter: L
Question
Lean organization by production cell. Acme Manufacturing adopted lean management and reorganized their factory into production cells. Each production cell produces a small family of products or components from start to finish. For the industrial fittings cell, they replaced the CNC machine with a drill press. The drill press is a much less costly machine than the CNC machine. It also has a longer cycle time, but it is faster and easier to set up. The faster setups allowed Acme to reduce their batch sizes from 2,500 to 250. The lean cell is depicted in the figure below.
Each fitting requires four minutes on the drill press. Drilled fittings awaiting lathing are located between the two machines in the cell, so lathe operations could begin drilling was complete on the entire batch. However, some time is required to set up the lathe to produce the particular model fitting in the new batch. The fittings completed on the lathe are in placed in front of the grinding machine. Grinding completes work on the batches on a first in, first out basis. Fittings completed on the grinder are placed in front of the inspection and packing workstation. Once the entire batch is complete, it is moved to the warehouse for finished goods storage, and the units are available to be included in shipments to customers. Despite adopting lean management, Acme Manufacturing continues to use standard costing. The standard direct material cost is $1.50 per fitting. The standard direct labor cost is $20 per direct labor hour and the standard overhead cost is $60 per direct labor hour. The standard direct labor time per fitting is equal to the standard processing time in each process.
Questions: 1. What is the total standard cost per fitting? Show your calculations.
2. Suppose a customer wants 100 fittings of model QX5, not currently in stock. Assuming Acme can instantly begin production of a batch of 250 model QX5s on the drill press when they receive the order, what is the shortest possible amount of time it would take to have the 100 QX5s in the warehouse ready to be shipped to the customer? Explain your answer including any assumptions and calculations.
3. Regardless of what the standard cost calculations say, how do you think the actual costs of operating production cells will compare to the conventional departmental organization? What costs are likely to be higher and what costs are likely to be lower?
Machine on lathe 4 minutes Drill on press 4 minutes Batch: 250 Lean Cell GrindInsp Inspect & pack 6 minutes 4 minutes Times to complete a single unitExplanation / Answer
The calculation of standard cost per fitting as per assumptions given in the problem
Per unit standard direct material cost is $1.50 per fitting
The total time taken to complete a fitting is a lean cell is 4 minutes in drill section , then 4 minutes in lathe section ,then 6 minutes in grinding section and finally 4 minutes for inspection and packing . it comes to 18 minutes to complete unit of fitting
The standard direct labor cost is $20 per hour , we have to find out the direct labor cost if it is 18 minutes the working is
Direct labor = ($20/60) * 18
Direct labor per unit = $6
We will calculate the standard overhead cost given is $60 per hour . the time taken to complete1 unit is 18 minutes the working is
Standard overhead cost = ($60/60)*18
Standard overhead cost per unit = $18
We have now the standard cost per unit of all cost items. The below tabular form shows the standard cost to produce 1 fitting
Standard cost per unit
particulars
Amount($)
Direct material
1.50
direct labor
6.00
overhead
18.00
total standard cost
25.50
The total standard cost is $25.50
2 ) the standard batch size is 250 , so even if 100 units of model QX5 is produced the time in the 4 sections are as following
the total time taken is 2400 minutes or 40 hours to manufacture the model QX5 to be ready for shipping
Standard cost per unit
particulars
Amount($)
Direct material
1.50
direct labor
6.00
overhead
18.00
total standard cost
25.50
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